After AOL Time, who's next to merge?

JonFriedman

Now that America Online and Time Warner have finally merged to create AOL Time Warner
AOL
the pressure on rivals to expand their operations may intensify - and soon.

Keeping up with AOL and Time Warner won't be easy. AOL is the leading Internet company and Time Warner boasts the biggest media operation in the world.

"All of the rivals of AOL and Time Warner will be monitoring the new company's progress," said Michael Holland, president of New York money manager Holland & Co. "They'll be talking to one another about possible combinations."

John Corcoran, an analyst with CIBC World Markets, said in an investment report on Jan. 12 that he is looking for AOL Time Warner to have 2001 earnings before interest, depreciation, taxes and amortization - a key measure of a media company's cash flow - of more than $11 billion, increasing at an annual rate of 30 percent at the outset; free cash flow growing at 50 percent; cash earnings per share expanding at 25-to-30 percent and synergies of $1 billion in 2001.

The speculation that Yahoo could team with one of those companies, as a way of rivaling AOL Time Warner, has heated up as it became more apparent that AOL and Time Warner would win approval for their merger.

Companies engage in mergers so often - remember AMR
AMR, +0.81%
and TWA
TWA, +31.12%
announced a merger last week, too, as a way to keep pace with UAL
UAL, -0.33%
in the airline industry - because history has showed it's faster and cheaper for companies to expand operations by doing deals rather than building alone.

The power of AOL Time Warner is underscored by what the Wall Street Journal noted is its 26 million Internet customers, 148 million registered-instant messenger users, 12.8 million cable subscribers and millions of magazine readers, plus the company's expansive library of films and its tens of thousands of television properties.

In conversations with reporters over the course of the year-long merger negotiations, AOL Time Warner Chief Executive Gerald Levin stressed that the music business perhaps represented the greatest opportunities for joint ventures or "synergies" between AOL and Time Warner.

Time Warner's recording artists range from Madonna to Bjork and Cher.

AOL Time Warner's name brand properties range from such Time Inc. magazines as Time, Fortune, Money, People, Entertainment Weekly and Sports Illustrated; Home Box Office, which produces such hit TV shows as "The Sopranos," "Sex and the City" and "Arliss"; Warner films including blockbusters "The Perfect Storm" and "The Green Mile," and Turner Broadcasting, containing CNN, TNT and TBS cable networks.

"Together, AOL Time Warner will be the ultimate consumer-oriented growth company centered in the rapidly evolving media industry, heavy on stable subscription-driven businesses and armed with a long-term engine of growth in the increasingly global AOL franchise," said Salomon Smith Barney analysts Lanny Baker and Jill Krutick on Friday in a research report. Salomon Smith Barney is a unit of Citigroup
C, -0.34%

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